Draft Criminal Justice and Police Act 2001 (Powers of Seizure) Order 2018

Sam Gyimah Excerpts

Tuesday 20th March 2018 General Committees

[The Minister for Universities, Science, Research and Innovation (Mr Sam Gyimah)]

I beg to move,

That the Committee has considered the draft Criminal Justice and Police Act 2001 (Powers of Seizure) Order 2018.

It is a pleasure to serve under your chairmanship, Ms Ryan. The UK wholesale energy markets are of great significance to the UK economy. The large sums involved and the importance of the wholesale energy market for financial services, industry and consumers make integrity of the market a matter of national and international importance. Insider trading and price manipulation in wholesale energy markets harms hard-working consumers and businesses. It drives up prices and distorts markets, which should be fair and transparent. The Government believe it is therefore vital that the energy regulator in Great Britain, Ofgem, has strong powers to investigate and punish those behaving in this way. Strong powers also have a deterrent effect, making those considering cheating the system think twice.

Insider trading and market manipulation in wholesale energy markets is prohibited by the EU regulation on energy market integrity and transparency, or REMIT, which has been in force since December 2011. In June 2013, the Government made civil enforcement regulations for REMIT, the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013. The 2013 regulations give Ofgem powers to impose unlimited financial penalties, access information and enter premises of a regulated person under warrant. In March 2015, the Government strengthened that regime by making further regulations to create criminal offences of intentionally or recklessly breaching the prohibitions on insider trading and market manipulation.

The 2013 regulations gave the regulator power to search for and seize information and documents which appear to be relevant under warrant. There are, however, cases where Ofgem may have difficulty exercising this power of seizure. For example, investigating officers may be presented with a large volume of documents. Identifying documents relating to suspicious transactions among many documents of a similar nature can be difficult and time-consuming. Ofgem currently has no power to take away an entire body of documents in order to sift them for relevance off premises and evidence relevant to Ofgem’s investigation could therefore be missed.

Section 50 of the Criminal Justice and Police Act 2001 enables a person exercising such a power of seizure to remove material from the premises being searched. This information can then be adequately sifted to determine whether it is something which the person is entitled to seize, if it would not be reasonably practical to determine that on the premises. The power in section 50 applies where a person is exercising the power of seizure listed in schedule 1 to the Criminal Justice and Police Act. Over 60 such powers are already listed in the schedule. The effect of this order is to extend this power to Ofgem when it is searching premises to investigate breaches of REMIT. The Government believe that this will be a proportionate and reasonable extension of Ofgem’s powers, which will help to ensure it can take effective enforcement action.

The Government sought views in December 2015 through consultation on whether Ofgem powers should be strengthened to bring them in line with this provision. This measure was consulted on as part of a wider package of reforms to Ofgem regulatory powers. It received relatively few comments, as would be expected for a specialised issue. It is perhaps not surprising that most industry stakeholders who responded to the consultation argued that the powers were disproportionate. One industry stakeholder supported the powers being given to Ofgem with sufficient oversight. Other stakeholders were neutral.

We have considered stakeholder views carefully. We must weigh up the importance of giving Ofgem sufficient powers to tackle anti-competitive behaviour versus the need to respect stakeholder views. With that in mind, the Government concluded that sufficient safeguards will be in place to meet stakeholder concerns and that it will be proportionate to proceed with this instrument. The first such safeguard is that the power will apply only where a court has granted Ofgem a warrant to search premises. Secondly, when Ofgem exercises this power, it will be under a statutory duty to sift information as soon as reasonably practicable after seizing it, and return anything that it was not entitled by the warrant to seize. Thirdly, a person who is the owner of a document can apply to the court for the return of such material. Finally, magistrates may of course refuse warrant applications, preventing a potential investigation where it is not seen to be justified. Ofgem will have to provide extensive evidence to support an application, and therefore we expect it to do so only when it is absolutely necessary to support an investigation.

Further, ensuring that the relevant evidence is identified more quickly should lead to less disruption to those businesses being investigated, with more efficient investigations overall. Co-operation with Ofgem will also ensure that investigations run quickly and smoothly. The Government would certainly encourage those under investigation to help Ofgem in whatever way they can.

In conclusion, this additional power will aid Ofgem in its investigation of market abuse, but with safeguards that should ensure that it is used proportionately. I commend this order to the House.

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[Mr Gyimah]

I thank hon. Members for their valuable and relevant comments on the order. The first point made by the Opposition spokesperson was about whether this power would encourage fishing expeditions on the part of Ofgem. To assuage his concerns and those of the Committee, the terms of the warrant to conduct seize and sift will be clear and well defined. Ofgem will only seize and retain information that is relevant to the investigation at hand and specified in the warrant.

There was also concern about the timing and the sense of urgency regarding the consultation and the path to where we are now. The Government have been considering priorities against a very restricted legislative timetable, as the hon. Member for Southampton, Test, will be aware. A decision was taken in July 2017 to take forward the proposals on REMIT separately from the other proposals in the consultation. The timeline was driven by the non-REMIT part of the consultation, which included proposals for new primary legislation, on which decisions were due to be taken in early 2016. The opportunity for that decision to be taken was then delayed. I hope that that gives some background on the timing.

[Dr Whitehead]

The other piece of secondary legislation to which the Minister has referred comes under another area of law and, as far as we understand, that has been laid before Parliament as a negative statutory instrument and will come into force on 9 April, I think. That appears to suggest that the two bits of legislation that were set out in the consultation ran in parallel and not separately, as he appears to be suggesting.

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[Mr Gyimah]

The basic point is getting the time. The hon. Gentleman is aware of the restrictions on the legislative timetable. As he rightly recognises, this is a timely addition to the powers of Ofgem that provides safeguards as far as seizure is concerned. As a relatively new Minister in the Department, I welcome the fact that we are able to get on with it. I refer to what the hon. Gentleman said: it is important that action is taken, and is taken swiftly. That is why we are here.

I turn to the comments made by my hon. Friend the Member for Bosworth. I am happy to write to him to give some detail on the definition and how many documents constitute too many documents. To give the Committee an idea, there may be many documents of a similar nature—for example, buy and sell orders—that may appear relevant to an investigation. Rather than going through someone’s social media accounts, if we think about the number of trades that are conducted in any given day or any given period, it might not be possible to sift all of them on site. I am happy to write to Committee members to illuminate in more detail the definition and limits of what counts as far as documentation is concerned.

[David Tredinnick]

On electronic media, will the Minister look at whether iPhones and other types of equipment are covered?

--- Later in debate ---

[Mr Gyimah]

Documents that are stored electronically are definitely included. I do not think that extends to social media accounts. I will write and set that all out in detail.

[David Tredinnick]

I have to say to my hon. Friend that it should. He needs to look at this, because we now have such a wide range of communication systems at our disposal that it is pointless coming forward with an order that does not cover all the possibilities. I think that should be addressed.

[Mr Gyimah]

As I have said, I will write to my hon. Friend to set out in full detail all the electronic media that are covered. That will be the best way to proceed so that he has a comprehensive answer to his questions.

The order provides Ofgem with the necessary tools to aid its enforcement efforts in this area. That is self-evident. The proposed seize-and-sift power will enable Ofgem to scrutinise information thoroughly and to identify what is relevant. It will do so under the scrutiny of the magistrate’s warrant, which is an important safeguard. It will contribute to Ofgem’s ability to effectively investigate and prosecute market manipulation and insider trading offences. I commend the order to the Committee.

Question put and agreed to.